2020 BGSS 3E POA EOY P2 Q2

2020 BGSS 3E POA EOY P2 Q2

2 On 15 July 2020, Smart Trading purchased a batch of sandals on credit from an overseas supplier, Fast Walker. The invoiced amount of the purchase was $9,000. The following costs relate to this batch of sandals.

1. Delivery and handling cost for sandals, $500.

2. Insurance for shipment of sandals, $120.

3. Import tax on sandals, $630.

4. Wages for staff to receive and repack sandals, $700.

5. Warehouse rental, $4 000.

6. Wages for salesperson to advertise and sell sandals, $2 900.

REQUIRED

a. Calculate the cost of inventory purchased.

[2]

On 1 August 2020, Smart Trading had 20 units of inventory valued at $6 000. During the month of August, the following cash purchases by cheque took place.

Purchases

Details

Aug 8

Bought 20 units of inventory for $3 500

Aug 13

Bought 20 units of inventory for $5 000

Aug 23

Bought 40 units of inventory for $10 500

  

Sales

 

Aug 17

40 units at $40 600

Aug 29

20 units at $25 300

The business records inventory using the First-In-First-Out (FIFO) method.

REQUIRED

b. Calculate the cost of sales for the month of August 2020.

[1]

c. Prepare the inventory account, and bring down the balance to the next month.

[6]

On 30 September 2020, the business had an ending inventory valued at $4 320. Due to flash floods, the packaging of the remaining goods was damaged. The loss amounted to $800.

REQUIRED

d. State the valuation rule for inventory.

[1]

e. Prepare the journal entry to account for the goods destroyed.  A narration is not required.

[2]

f. State the effect and the amount affected on the following items for the month of September if the value of the inventory was not adjusted.

[2]

i. expenses

ii. profit

[TOTAL 14]

Lorem ipsum dolor sit amet, consectetur adipisicing elit. Optio, neque qui velit. Magni dolorum quidem ipsam eligendi, totam, facilis laudantium cum accusamus ullam voluptatibus commodi numquam, error, est. Ea, consequatur.

Cost of inventory purchased = 9 000 + 500 + 120 + 630 + 700

= 10 950

Cost of sales = 6000 + 3500 + 5000

= 14 500

The valuation rule for inventory is to value inventory at the lower of cost and net realizable value.

(i) The expense is understated by $800 

(ii) The profit is overstated by $800

Related Articles